New Approach to Giving Allows Heron Wider Array of Options

The F.B. Heron Foundation’s plan to move its entire $274-million endowment into investments that produce both social and financial returns is pretty electrifying for the staid world of philanthropic investing.

But experts say the most radical part of the plan is the foundation’s shift away from a strict asset-allocation plan.

Foundations typically set up a plan for what percentage of the endowment to put into different types of investments, such as stocks, bonds, or private equity, and then look for deals in the different categories. The goal is for the endowment to grow as much possible, but not risk major losses.

Clara Miller, Heron’s president, says the foundation is moving away from looking at types of assets as the primary way to organize its investments. Instead, the organization will first ask how it can best use its money to achieve its mission of helping low-income people move up from poverty, and then determine how best to manage the investments.

“We’re trying to look into the part of the economy that creates jobs for the people we care about most and creates more economic integration,” says Ms. Miller. “What are the companies that we want to make sure we’re investing in?”

Flexibility in Investments

Moving away from a strict asset allocation is a big deal, says David Wood, director of the Initiative for Responsible Investment at Harvard University’s Kennedy School of Government: “It opens the door to different kinds of investment and less conventional investment.”

Greater flexibility will allow the Heron Foundation to consider a wide range of impact investments, but it will make the choices the foundation has to make more complicated, says John Goldstein, managing director of Imprint Capital, which specializes in social investing and has worked on projects for Heron.

The foundation will have to make choices between grant and investment opportunities that have very different potential social benefits, financial returns, and risk, says Mr. Goldstein.

He says there might be times when Heron has to choose between a potentially lucrative investment that creates only a small number of jobs and a nonprofit-run enterprise that employs vulnerable workers but will never generate a lot of money.

Foundations typically don’t have to weigh those kinds of tradeoffs, says Mr. Goldstein.

“They’re writing the same types of checks to accomplish the same types of things,” he says. “But when you can write a lot more different types of checks to a lot more different types of organizations, it gets harder to clearly and unambiguously make those choices.”